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Bookkeeping, in business, is the recording of financial transactions, and is part of the process of accounting.[1] Transactions include purchases, sales, receipts and payments by an individual or organization. The accountant creates reports from the recorded financial transactions recorded by the bookkeeper and files forms with government agencies. There are some common methods of bookkeeping such as the single-entry bookkeeping system and the double-entry bookkeeping system. But while these systems may be seen as "real" bookkeeping, any process that involves the recording of financial transactions is a bookkeeping process.Bookkeeping is usually performed by a bookkeeper. A bookkeeper (or book-keeper), also known as an accounting clerk or accounting technician, is a person who records the day-to-day financial transactions of an organization. A bookkeeper is usually responsible for writing the "daybooks". The daybooks consist of purchases, sales, receipts, and payments. The bookkeeper is responsible for ensuring all transactions are recorded in the correct day book, suppliers ledger, customer ledger and general ledger.The bookkeeper brings the books to the trial balance stage. An accountant may prepare the income statement and balance sheet using the trial balance and ledgers prepared by the bookkeeper.

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Classification of Accounts• Personal Accounts– Natural persons– Artificial persons– Representative personal accounts

• Real Accounts– Tangible Real A/c– Intangible Real A/c

• Nominal Accounts– Incomes & Gains– Expenses & Losses

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Personal Account Definition & Examples of accounts:- Personal Account: Personal accounts are accounts relating to

persons or organisations with whom the business has transactions. E.g Customer, Supplier, Money lenders etc.

Real Accounts• Real Accounts: Real accounts refer to accounts in which property and

possession are recorded. E.g Land, Building, Plant & Machinery, Vehicle Cash, Bank etc.

Nominal Accounts

Nominal Accounts: Nominal accounts are revenue, expenses, gains, and losses.

E.g. Wages, Salary, Discount etc .

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Recording of Transactions:

Rule for Personal Accounts: Debit the Receiver Credit the Giver

Rule for Real Accounts: Debit what Comes in Credit what goes out

Rule for Nominal Accounts: Debit all expenses & Losses Credit all incomes & gains.

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The Accounting CycleThe Accounting Cycle

Journalize transactions. Post entries to

the ledger accounts.

Prepare trial balance.

Prepare financial statements.

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Single Entry System

Under this system both the aspects of transaction are not recorded.

Only Personal accounts & cash book are opened.

Under this system balance sheet is not prepared.

This system is therefore not considered as an authentic one.

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Double Entry Accounting System

Based on principle of duel aspect of each transaction.

For correct presentation both of them should be recorded.

Requires maintenance of records of assets, liabilities, revenues and expenditure.

Impact of each transaction can be seen or measured.

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Primary Books of AccountsBefore preparation of Financial Statements we have to prepare

following primary books of accounts: Cash book Bank book ( incl. Bank Reconciliation Statement) Journal book Ledger Trial Balance

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Journal Entries

• Refresher on…

• Debits• Credits• Accounts

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Debits & Credits

• Debits are the left of the T account.• Debits do not mean increase. • Debits are not “good” or “bad”.

• Credits are the right of the T account.• Credits do not mean decrease. • Credits are not “good” or “bad”.

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GENERAL JOURNAL Page 123

Date DescriptionPost. Ref. Debit Credit

PROFORMER

GENERAL JOURNAL

Date Account Titles and ExplanationPR Debit Credit

1998

Jan 1 Cash 1,000,000

Li, Capital 1,000,000

Owner invested cash in the business.

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Posting Journal Entries to the Ledger Accounts

Posting Journal Entries to the Ledger Accounts

GENERAL JOURNAL

Date Account Titles and ExplanationPR Debit Credit

1998

Jan 1 Cash 10,00,000

li, Capital 10,00,000

Owner invested cash in the business.

General LedgerCash

Date Debit Credit Balance1998

Jan 1 1,000,000 1,000,000

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Posting Journal Entries to the Ledger Accounts

Posting Journal Entries to the Ledger Accounts

GENERAL JOURNAL

Date Account Titles and ExplanationPR Debit Credit

1998

Jan 1 Cash 1,000,000

LI, Capital 1,000,000

Owner invested cash in the business.

General Ledgerli, Capital

Date Debit Credit Balance1998

Jan 1 1,000,000 1,000,000

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Trial Balance

• In order to know if the account has recorded all the transactions correctly– We must know if debits = credits

• Trial Balance– A list of the ledger account balances. (T-Accounts)– The total of the debit balances should equal the

total of the credit balances. – Balance indicates mathematical accuracy

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Trial Balance

Cash

$25000

$300

$3500

$2,100

BALANCE: $26,300

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Abbreviations used in bookkeepingA/C – AccountAcc – AccountA/R – Accounts receivableA/P – Accounts payableB/S – Balance sheetc/d – Carried downb/d – Brought downc/f – Carried forwardb/f – Brought forwardDr – DebitCr – CreditG/L – General ledger; (or N/L – nominal ledger)P&L – Profit and loss; (or I/S – income statement)TB – Trial BalanceGST – Goods and services taxVAT – Value added taxTDS – Tax deducted at sourceEBT – Earnings before taxEAT – Earnings after taxPAT – Profit after taxPBT – Profit before taxDepr – Depreciation Prepared by SADASIVAM RANI

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